GE replaces CEO John Flannery; shares rise 15 percent

General Electric shares fell after the company said it will take a $11 billion charge in fourth quarter for tax changes and its insurance portfolio. Aleksandra Michalska reports.
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General Electric had named naming Lawrence Culp, 55, former head of tech firm Danaher Corp., as its new CEO.(Photo: PR NEWSWIRE)

General Electric is making a change at the top, naming Lawrence Culp, former head of tech firm Danaher Corp. to replace CEO John Flannery.

Culp, who had been named to GE's board of directors in April, takes over a shrinking corporate giant, the company announced Monday. In recent years, GE has sold its appliance division, as well as many of its GE Capital assets.

Culp, 55, was president and CEO of Washington, D.C.-based science and tech company Danaher Corp. from 2000 to 2014.

“GE remains a fundamentally strong company with great businesses and tremendous talent. It is a privilege to be asked to lead this iconic company," Culp said in a statement.

“Larry Culp has a proven track record in company transformation and delivering shareholder value," said Thomas Horton, GE's lead director in a statement. "The board looks forward to working with Larry and his team to return GE to growth and long-term success."

GE also announced its GE Power business would take a $23 billion non-cash charge due to its weak performance. GE Power "will fall short of previously indicated guidance for free cash flow and EPS for 2018," the company said.

GE shares (GE) were up 12 percent in early trading at $12.63; they rose 15 percent in premarket trading. Shares had fallen 39 percent this year and hit a one-year low last week.

In June, GE was removed from the Dow Jones Industrial Average, an index it had included in since 1896.

The stock jump is a sign from Wall Street "that Flannery's leadership was not providing enough value – and that the market expects Culp to be better suited for the top position," said Tim Hubbard, assistant professor of management in the University of Notre Dame’s Mendoza College of Business. "Indeed, an outsider may be just what GE needs to move forward as it continues to redefine itself while trying to maintain its best parts."

As the conglomerate has shed many of its parts to focus on plane engines and gas turbines, "the GE of today is vastly different from the GE of 10 years ago," Hubbard said. "The changes that have taken place since Flannery’s appointment have been relatively drastic with little financial results to show. It’s hard to expect a CEO to maintain their job while there is a 35% decline in stock price over 10 months."

The CEO move was not enough for Jim Corridore, director of industrials equity research at CFRA Research, to recommend investors buy GE stock.

"The market seems to be welcoming a change in leadership but the new CEO will be facing many of the same problems Mr. Flannery faced," he said in a note to investors. Still, he said, that Danaher, under Culp's leadership, "saw strong growth in revenues and EPS, and hopefully he can right the ship at GE."